≡ Menu

Wholesale vs. Private Label vs. Retail Arbitrage

wholesale Amazxon

For my Amazon business, I source products 3 ways (well, more than 3, but the major methods are):

  • Retail/online arbitrage
  • Private Label
  • Wholesale
Can you guess which two have been the more problematic these days?

That's right. Retail/online arbitrage, and private label.  I'm not dismissing those methods. They still bring me money. But I -- and you -- have been hitting some roadblocks on Amazon, right? So let's break it down.

Problems with Retail/online arbitrage: 
  • Keeping track of all the different products and quantities.
  • Removing price labels
  • Getting warnings/cease and desist notices from Amazon or the brand owner (yikes!) of a few products
  • Getting said products forceably removed from Amazon
  • The risk of the Amazon price plummeting as other sellers buy the same product
  • Insurmountable brand restrictions imposed by the manufacturer
  • Generally having to handle the inventory yourself (you're the receiver, prepper and shipper - unless you're paying a fulfillment center to do it for you)
  • Inability to efficiently deal with supply and demand. Example A: A big influx of resellers can bloat the supply at Amazon, and leave you with aging inventory and/or plummeting prices. Example B: You may have a "hit" product but it's generally very difficult for you to replenish your stock consistently via retail/online arbitrage
I'll always be friends with arbitrage, though. It's gotten tougher but I still enjoy the "thrill of the hunt", and I love snapping up holiday clearance items for the following year. But it's not without its headaches.

 

Let's move on to private label problems:
  • Competitors copying and/or hijacking your listing
  • Manufacturing and import delays (if you're dealing with a foreign manufacturer)
  • Generally higher up-front costs for overseasl manufacturing (typically $3000 to $5000)
  • Having to build an Amazon listing from 'scratch'
  • Having to build up customer reviews (honestly and within Amazon's rules) via discounts, giveaways, etc.
  • Having a competitor (unethically) file a copyright/trademark infringment notice with Amazon and thus getting your listing pulled down. This actually happened to me. The legal remedy ($3,000) cost far more than the monthly potential revenue for this product)
  • Amazon red tape. Example: silly restricted product removals like this one I received - essentially Amazon is calling a popular toy a supplement???)
  • Dealing with one- to three-star product reviews, which can cause your products sales and/or ranking to plummet
Again: I'll always be friends with private label. It appeals to the entrepreneur in me. But it's not without its headaches.

 

So here's where wholesale sourcing licks ALL the problems above (when it's done the right way):
  • No price labels to remove
  • You can deal with one (or a few) SKUs and larger quantities of each SKU
  • You (the Amazon seller) are working direclty with the brand owner/manufacturer, so you are already granted permission to sell.
  • The product is (generally) already in the Amazon catalog, so it already has a history of sales and reviews on Amazon
  • If a competitor starts unethically filing trademark/copyright infringment notices against the product, that's handled by the brand owner/manufacturer - not you
  • The brand owner/manufacturer can easily restrict Joe-Schmoe sellers from piggy backing the listing, undercutting the MAP (minimum advertised price), etc.
  • Many brand owners permit initial small orders from resellers (e.g., $500 to $1500)
  • With a uniform product you're ordering wholesale, you can have a trusted pre-fulfillment center receive, prep and ship the products to Amazon for you, at a reasonable cost. This way, you don't have to 'touch' the product.

So, does wholesale sound appealing? Great. I can tell you, it works!

You're probably asking "where can I start?"

  • Here's a free wholesale workshop that runs February 11-21, 2019 from my trusted partners at The Wholesale Formula. And you can also join their free Facebook group to ask any questions about sourcing wholesale!

What have your experiences been with retail arbitrage, private label, or  wholesale? Post your comments below!

-Jordan

{ 43 comments… add one }
  • Aaron February 11, 2019, 3:18 pm

    We are pretty much RA with a smattering of OA. We have dabbled in wholesale, but most of our successful sellers are RA but in categories/brands that are a bit more restricted. Our holiday sales were well beyond expectations…4th quarter sales were higher than our entire first year selling.

    We still struggle, as most do, with new sellers who tank prices in an often unsuccessful attempt at earning the buy box. I do wish warehouse proximity to the buyer was understood a bit better, in regards to buy box and even successful sales that aren’t in the buy box.

    • Jordan Malik February 13, 2019, 10:18 am

      Thanks for sharing, Aaron. It’s great you did so well with RA (retail arbitrage) in Q4!

  • Laura February 11, 2019, 2:18 pm

    I love your description of the three avenues! Hubby and I have tried all three, but have found our “home” with RA.

    Private Label – we had a product built in China, did great with our first order, but subsequent orders the manufacturers gouged up the prices and we’ve ended up with a garage full that is still selling – but slowly – we send in a carton at a time to save storage fees. We got burned and doubt we’ll go that route again.

    Wholesale – we had a “too good to be true” offer to be exclusive sellers – But… the product is new in the US, and hasn’t taken off very well. It’s a line of products and the only one of the products that has sold well is the one we make pennies from. Again, we have a closet full and wish we could just dump it all and cut our losses. We might try this again, but will learn from our mistakes and only follow the Wholesale Formula’s advice to find something that is already selling. Highly recommend their free workshop, and would love to sign up for the coaching once we have the funds to (1) pay for the coaching and (2) put a few thousand up in initial inventory. Love those guys! They’re passionate about helping others – as you are Jordan! Excited to see you all partnering together!

    RA – We love doing RA. We’ve found a niche market – that oddly enough – the Wholesale Formula guys mentioned as a “oh – by the way – here’s an idea” a couple of years ago. Now we zoom into a few of our favorite stores, pick up our items, can quickly get them ready to ship, and almost always make 50-100% (and sometimes higher) ROI. We also do a little yard-sale re-sell and that’s lots of fun – like a treasure hunt! Love your tips, Jordan, and your book, “You see a bunny I see money honey!

    • Jordan Malik February 13, 2019, 10:20 am

      Hi Laura, thanks for the compliment! It seems some folks strike gold with retail arbitrage, others are hitting major roadblocks. RA can be so unpredictable, but it’s great when you hit a home run. Thanks for sharing!

  • Justin February 11, 2019, 11:06 am

    We have been doing well with some ra but definitely got bit by target toys sales before Christmas. Still sitting on quite a few. Trying to add in wholesale to be able to scale faster.

    • Jordan Malik February 13, 2019, 10:20 am

      Hi Justin, yes many of us have faced the ‘unpredictability’ of Retail arbitrage (like when prices tank).

  • Johnny Bravo February 11, 2019, 7:38 am

    I still find online arbitrage is hands down the fun way to sourcing but it time consuming. But your online arbitrage software makes it a little easier and faster.

    One of my horror I had faced was going deep on an item. Why? Because I sold the item last couple of years and I know it sold well and consistent. This holiday the item was on sale at a retail store. I spent $1500 hoping I can turn it to $2000 profit with 2 weeks. On day 4 of it gone live, the listing got suspended for hazmat. I was able to retrieve 1/2 of my inventory to return it. The other half got stuck at the fulfillment center and they don’t know I had to contact them manually to have my items ship to me (because when I created a removal, it said that my items is at a fulfillment center that doesn’t allow user to create a removal). It took my 3 wholes days of back and forth with the reps for them to figured out why I can’t create a removal order. The return deadline have ended and I have $800 worth of inventories that I can’t sale because other market have the item listed below what I had purchased for. So lesson learned: even if you know the item sell well don’t go do because you never know what amazing will do to that listing.

    • Jordan Malik February 13, 2019, 10:22 am

      Johnny that’s Amazon making those silly broad-sweeping changes (e.g. hazmat), sometimes they do it for items that clearly are NOT hazmat. That’s the good thing with Wholesale is (when you’re an authorized reseller), you have the power of the ‘brand’ (manufacturer) to help you remedy the situation. The manufacturer is in the same boat as you so they have every incentive to assist you (or you assist them) in remedying the situation with Amazon.

  • Faizan February 11, 2019, 4:55 am

    Private label nightmare, having a new product which is being sold by 10+ brands, and within 10 days of launching, got a copyright violation notice, upon research that particular design was patented in USA, and this was not detected while product selection, listing or production.
    Current status, all 10+ brand’s product of same item are now showing currently unavailable, and just 2 sellers are selling that model with their brand name, both might be brands of same company.

    • Jordan Malik February 13, 2019, 10:23 am

      Hi Faizan, sorry to hear that. Yes it’s a good idea to do patent research before private labeling a product.

  • Phil February 11, 2019, 3:56 am

    Every time I try RA the products seem to sit and sit. I’m not doing it right! Wholesale definitely goes easier, though I have run into problems of lots of competitors.

    • Jordan Malik February 13, 2019, 10:25 am

      Hi Phil. Yes competition can be thick with wholesale. The key is to be persistent and show them specific methods of how you can add value to the manufacturer’s Amazon listing and help identify/solve their Amazon problems. Those Amazon sellers that do that become true partners with the brand/manufacturer. The Wholesale Formula’s free workshop goes into some of those strategies.

  • Holly Koch February 11, 2019, 2:38 am

    RA failure…I jumped on the “chocolate” bandwagon after watching a webinar about Halloween in early October, and went big on chocolate kisses, chocolate candy bars and was faced with too many potential pricing errors where my buddy Amazon deactivated my listings because of a potential negative experience. I reported a major glitch in their system that wouldn’t update my page. Long story short, due to all these deactivations, I suffered lost sales and then the prices tanked. It’s been more than 60 days and too late to return to stores and I have more chocolate than I can eat. Moral of the story, I am NOT doing retail arbitrage again and will not buy chocolate ever again!!!

    • Jordan Malik February 13, 2019, 10:31 am

      Hi Holly, sorry to hear that. I usually avoid candy/chocolate *unless* it’s a ‘special edition’/’limited time’ candy that seems to be overly popular but clearly in shortage in stores/online. An ‘extreme’ example: I snapped up cases of Necco Wafers when it was announced – almost 2 years ago – that the maker was going out of business. Now, I had to hang on to that candy for 10 months or so (the manufacturer had reopened for a while and thus demand evened out for a short period) but when the manufcaturer closed for good (mid-2018), I sold the Necco Wafers at 2.5x to 3x my purchase price. But I got lucky, as the ‘Dum Dum’ candy brand this year bought the Necco brand and will resurrect the product. So RA can be great but there’s a ton of ‘unpredictability’ built-in to the model. In comparison, being an authorized reseller of a wholesaler helps eliminate a LOT of that risk.

  • Donna Harrison February 9, 2019, 11:22 pm

    My favorite biz models are wholesale & dropshipping (from a legit vendor). Wholesale is easy, dropshipping is even easier. Its also easy to get into trouble no matter how meticulous you are. My favorite fiasco was listing a certain item on Amazon. I don’t usually sell this item on Amazon because the margins are too thin, but due to a media frenzy at the time, there was a run & profits were running high due to the demand. I slapped a mere 20 up on AZ & they sold out within minutes. Good deal you’d think? Sit back & wait for the easy money to roll in.Wrong. Sunday night, vendor closed. I placed my orders & wait to collect my profits. So did several other sellers. Monday morning the vendor saw what was going on, jacked the price way up & stalled on filling our orders. They were just sitting there unfulfilled for hours. Half way through they posted a stock out & all orders were cancelled ! They wouldn’t even honor the sales already placed. Yes, they threw us all under the bus to keep the profits for themselves. What to do now? I was forced to scramble to fill my Amazon orders via eBay so I wouldn’t get dinged or lose my account altogether. Those who obliged obviously took a loss, but were trying to spare their own accounts. I had this item on Ebay as well, so I filled as many as I could via other eBay sellers & OA, but the item was virtually unobtainable at this point. I was lucky to fill several, but had to cancel eBay orders. I waited & prayed. This put me in the Ebay dog house for over 1 year & I lost money filling those orders. Over the next few days the price on this item skyrocketed & the vendors made a killing. Moral of the story: Never trust a vendor. Though they may seem nice & reputable, they WILL dog you in the name of money. Always have back-ups. I still use this vendor because they have the best prices, but I will never forget what they did.

  • Elisa February 9, 2019, 10:54 pm

    Thank you for the insight Jordan. We are mostly only selling RA with a little OA, but we have also seen another problem. Over the past year, Amazon is making it harder to send items into FBA by splitting up the shipments. Not only are we having to send into many more warehouses than we used to a year ago, but we are also having issues where Amazon only wants us to send a couple small, light items to warehouses on the other side of the country. I have items that I keep trying to send into each order, week after week, and end up having to pull them. It used to be that most of our items went to what Amazon has designated as our main warehouse and a couple of other not so distant warehouses. We are now shipping small orders to 10 or 12 warehouses, and warehouses further way, so we are paying more per lb for shipping.

    I even tried their Inventory Placement, but they still split the order into many shipments, many of the shipments on the other coast. Amazon now says with their Inventory Placement that the placement will prevent SKU splits, so it will send all of an item to one warehouse. Which really doesn’t help. BTW, when did Amazon change how Inventory Placement worked? It used to be that they would try to send items to one or two warehouses that are somewhat near you.

    I have found myself wondering if this is a way that Amazon is trying to push RA/OA sellers towards Wholesale and PL. If you send in 18 or more of an item, it will all go to one warehouse and normally your main warehouse. Creating shipments is becoming so frustrating, that I feel we need to move onto something else, wholeseale in particular.

    • Jordan Malik February 13, 2019, 10:36 am

      Hi Elisa, yes your inventory splitting issue is something that you can possibly remedy by waiting till you get a bigger shipment ready. And yes, wholesale (and even private label) can help remedy that issue.

  • Patricia Rose February 9, 2019, 7:54 pm

    I still like online arbitrage as it suits my situation at the time. I am leery of wholesale…what do you do if the price tanks and you have $3000 worth of product?

    • Jordan Malik February 13, 2019, 10:39 am

      Hi Patricia. Wholesale relationships (when the manufacturer is directly selling to authorized resellers) protect price tanking by enforcing MAP pricing (Minimum Advertised price). So all the authorized resellers have to abide by the pricing rules set by the brand/manufacturer. Now IF an UNauthorized seller pops up on the listing, who got his/her inventory via arbitrage or another method, and starts selling the same product LOWER than MAP, well usually they have very limited quantities so they just run out of stock, or the brand (and/or an authorized reseller working with the brand) can attempt to have that seller removed from selling that product.

  • Dave Courtney February 9, 2019, 1:30 pm

    I purposely avoided the black Friday and target/Walmart etc type stores because listings tend to get overloaded in December. I went with much more clothing/activewear this year and it sold well before Christmas AND into the new year with everyone making their weightloss resolutions. This was my 5th Q4 and 2019 is my bundle/wholesale/private label year. Owning your listings is becoming much more important for Amazon success these days.

    • Jordan Malik February 13, 2019, 10:40 am

      Nicely said David. And yes I’ve seen Retail arbitrage folks diversifying into clothing/activewear.

  • Matt edwards February 9, 2019, 8:18 am

    Hey Jordan
    Thank you for always giving us the honest truth. Most of my sales are from eBay. I have not done much with amazon for the reasons you so clearly laid out retail/online arbitrage. Most of my sourcing comes from estate sales/yard sale storage lockers government auctions. But this also come with headaches. I love the simplicity of wholesale and want to move in that direction. I know the wholesale formula WORKS or you would not be a part of it. Just need to make the leap. Thanks again for all you do

    • Jordan Malik February 13, 2019, 10:42 am

      Thanks Matt. Yes the Wholesale Formula definitely does work. But many sellers start out with estate sales/yard sales/storage auctions and that’s how they get the capital to move into wholesale or private label. There will ALWAYS be a big market for ‘used’ stuff that sellers can make nice profits from (but like you said, it’s hard to scale that. Possible, but still hard).

  • Meg February 8, 2019, 10:51 pm

    For us, all the platforms seem to “merge” and we find ourselves doing a little bit of each one…most of the time…. While clothes shopping for ourselves we’ll see a huge lot of discounted socks and buy ’em ALL…sell ’em all on ebay for a huge profit, and then wonder if that’s really “arbitrage” we just did or wholesale (or is it the “amount” that makes it wholesale??..lol). Or we sometimes pair two or three items together, give the combo a fancy name (sort of like “private label??”) , and sell it with ease on ebay or Amazon)… So for us, we just call it all “buying and selling” because the lines are soooo fluid when you’re out there grabbing whatever you can to make a profit…and trying to make it QUICKLY …
    Thanks Jordan!!

    • Jordan Malik February 13, 2019, 10:42 am

      Meg that’s some creative sourcing and selling right there. I love it!

  • Jennifer Hall February 8, 2019, 10:13 pm

    I currently do RA/OA because I’m still in the early stages of my business and I don’t have a lot of money to spend. Eventually I would like to transition into using wholesale along with a prep center so that I can be location independent. Private label just seems like too much work for me!

  • Gary February 8, 2019, 10:03 pm

    I’ve only done a little retail arbitrage, so it’s hard for me to compare here. I do a lot of CL to eBay or Amazon. This Christmas was my lowest in recent years. Not sure why.

    • Jordan Malik February 13, 2019, 10:47 am

      Hi Gary, I hear a variety of stories from folks doing retail arbitrage or online arbitrage. Some are killing it (it’s a lot of work though), some are in the middle and some take a loss.

  • Grethel February 8, 2019, 9:58 pm

    I have similar problems as you, i think the best is to get exclusive as a wholesaler in some niche and keep the OA/RA and PL for extra income 🙂

    • Jordan Malik February 13, 2019, 10:48 am

      True. I always keep my eyes peeled for OA/RA deals that are just too good to pass up.

  • Titi February 8, 2019, 9:56 pm

    I currently source products via arbitrage -retail & online. There are benefits – you could start with as little as $50, profitable finds, easily combine your sourcing with household shopping and it is easy to do. The disadvantages I have personally experienced ( prices tanking, very MANY sellers on a listing, difficulty finding enough profitable deals, time consuming, and my dread of going out to the store in -35c weather) makes wholesale very attractive. I will be attending the free workshop.

    • Jordan Malik February 13, 2019, 5:29 pm

      Titi – yes many sellers sourcing via arbitrage have experienced the very same pros and cons you have!

  • Snow February 8, 2019, 9:24 pm

    We first heard of retail arbitrage in August of 2018. It sounded AMAZING! We hopped down to our local Walmart (which is a big deal because we NEVER shop at Walmart). We found a bunch of these Bluetooth karaoke microphone things with a selling rank of 150. That sounded kinda good. We bought all of them at $3 apiece, a shopping cart of $220, figured out how to label them and off to FBA they went. They all sold right away in the $20 to $12 range. Yep got suckered in a race to the bottom as we had zero idea what we were doing. We were GOOD at this. Born naturals even. I took all of the profits, went onto eBay and stocked up on box loads of exploding kittens. Hot game right? We were going to kill it at Christmas!

    Gated?!?!? What’s gated? What do you mean we aren’t authorized to sell?!? Hmmmmm “Honey? Maybe we should look at getting some training ?”. P. S. You know us if you got an exploding kitten game for Christmas. Snow Bunny

  • Cecilia February 8, 2019, 9:19 pm

    I have been doing private label for 18 months, while still working part-time in my day job and looking after my daughters.
    It has been a very interesting journey and a steep learning curve! Here are some of my stories/pet peeves:
    – Found a nice product which sold well for about a month. Then suddenly a large number of actual chinese manufacturers decided to sell the same product at a fraction of the price, and Amazon was flooded with similar listings almost overnight
    – I keep forgetting that China stops for 2 weeks due to the Chinese New Year; so my business is in stand-by at the moment: no products being manufactured or shipped… and one of my products is about to go out of stock
    – Finding brand names that haven’t already been taken can be challenging and requires a lot of creativity
    – Gathering the first reviews can take a lot of time, especially when most buyers are leaving product reviews as seller feedback by mistake!

    But on the overall Private Label has the potencial to be very profitable snd as you said Jordan, it gives you a nice entrepreneurial feeling!

    Thanks for your blog!

    • Jordan Malik February 13, 2019, 5:36 pm

      Great feedback Cecilia. Your complications with Private Label are common among sellers. In private label, bundling your product with something that compliments it (like an ebook or accessory) makes it far more difficult for a competitor to compete/piggy back your listing. It’s like putting “The Club” (anti-theft device) on your car – the thief (=the unscrupulous seller) will likely just bypass you, on to someone else’s car (=product)

  • Karl K February 8, 2019, 8:54 pm

    Unless you have an exclusive deal with the wholesaler, there can still be problems with other sellers undercutting the price. Hopefully the wholesaler will ask each seller to agree to MAP, as you say.
    I also like a mix of RA, PL, and wholesale.

  • Carmen February 8, 2019, 5:28 pm

    Hi, Jordan! What a fun give-away and a great blog post.

    My husband and I just became FBA sellers in November. We started working with a distributor and getting ungated in toy categories in January. We have already experienced a lot of the problems you mentioned. Products forcibly removed, cease and desist disputes, bloated supplies and plummeting prices. This is all just with retail/online arbitrage.

    Like you, I enjoy the “thrill of the hunt,” so I will always be scanning. We have looked into private label, but feel that we are not ready to make that jump quite yet.

    As for wholesale, we have actually gotten approved with some manufacturers to sell wholesale. Here is my big question with wholesale: How does anyone make money with FBA going wholesale? With the manufacturers with which we’ve been approved, their per item price (and even sometimes reduced pricing) is only a few dollars less expensive than the listed price on Amazon. By the time shipping and FBA fees are paid, I would basically be paying to sell the product.

    Again, since we are new at this, I am still in the throes of figuring it all out, so this may have a very simple answer. I am still learning and am excited about the sourcing wholesale seminar!

    • Jordan Malik February 13, 2019, 5:38 pm

      Hi Carmen, the key to that is knowing your cost structure and then negotiating a fair price with the manufacturer. If you are able to provide value to the manufacturer, they are far more likely to work with you! That is actually covered in the free Wholesale Formula Workshop (http://TheWholesaleFormula.biz)

Leave a Comment

↓